Why ad guru Martin Sorrell's S4 Capital shouldn't compete with WPP

Ajita Shashidhar
June 5, 2018

Barely six weeks after his unceremonious exit from WPP (an organization which he built into the world's largest advertising conglomerate, from a humble business of wire baskets), advertising mogul, Martin Sorrell has announced his new venture, S4 Capital. Sorrell on many occasions had said that under no circumstances would he run an advertising organization forever. The reality, however, is can Sorrell afford to run another conglomerate studded with old school advertising companies? WPP in the last few years has been struggling to grow. The ad conglomerate saw a mere 6.1 per cent growth in revenue in 2017, from 14.49 billion pounds to 15.27 billion pounds. Its net sales were flat.

Industry observers blame the sluggish growth on Sorrell's inability to invest adequately in new media. "He completely missed the digital bus, all his digital investments were an afterthought," remarks the former head of a WPP agency. Sorrell at WPP had to deal with a bunch of legacy agencies which probably didn't give him enough opportunities to make the smart, new age moves, which were the need of the hour. His limitations were grabbed as an opportunity by the likes of Dentsu and Publicis which have made a spate of technology-led acquisitions across the world. Over 45 per cent of Dentsu India's revenues for instance, comes from its technology-led businesses. "After all, the creative model has become archaic and smart technology solutions are what clients are asking for," says this senior advertising professional.

The fate of the advertising conglomerates is at stake, their business models have come under pressure and most of them are reporting flat growth. Analysts are predicting either a consolidation (just as the failed Publicis-Omnicom merger) or a possibility of consulting companies like Accenture or Capgemini acquiring advertising agencies. In the last decade when most of the advertising conglomerates were anxiously shopping for digital agencies, their competition was not merely restricted to the new age digital boutiques, but technology consulting companies which also started offering digital advertising solutions to their clients. The gap, however, is that these tech consulting companies don't have creative capabilities and acquiring stake in a few advertising agencies would make immense sense for them.

Building an advertising company yet again, could be detrimental for the man who pioneered advertising conglomerates. Sorrell was the one who ushered in the era of specialist agencies by first separating the media and creative functions of advertising agencies. The specialised media agencies have indeed been far more profitable. "He gave undue advantage to the media agencies and neglected the creative agencies," says this senior ad professional, who believes that having too many specialist agencies has created confusion for the ad conglomerates in the long run. "Sorrell realised that his model was fractured and was in fact, happy to exit WPP," he adds.

S4 Capital, according to Pratap Bose, Founder of Social Street, will enable Sorrell to start on a fresh note. "He will not have the baggage of legacy agencies and can look at a plethora of new age businesses such as data analytics, consulting and marketing communication services." Bose believes that Sorrell in his second innings would bet more on companies which are smaller and nimble.

In fact, Sorrell himself has said that his new venture would be "more agile, more responsive, less layered, less bureaucratic, less heavy".